The principal’s dilemma

Duna Lopez-Pintado and Juan Moreno-Ternero
Authors registered in the RePEc Author Service: Dunia Lopez Pintado

No 2009003, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: A recurrent dilemma in team management is to select between a team-based and an individual based wage scheme. We explore such a dilemma in a simple model of production in teams, in which the team members may differ in their effort choices and qualification. We show that, in spite of enhancing output as the basis for payment, a team-based wage scheme might be less profitable for the principal than an individual-based wage scheme. We also highlight a deep misalignment between designing optimal (output-based) incentives for a team and treating its members impartially. Finally, upon introducing the possibility of liquidity constraints in our model, we provide rationale for the so-called "rich get richer" hypothesis.

Keywords: team production; management; incentives; effort (search for similar items in EconPapers)
JEL-codes: C70 D23 D78 (search for similar items in EconPapers)
Date: 2009-01-01
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2009003

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